Life Insurance. One of those uncomfortable topics.
If the pandemic taught us anything, it’s that you can never be too prepared. We all need a protection plan in place, which includes a few essential elements: An emergency fund, health insurance, a basic estate plan and – for many of us – enough life insurance.
Unfortunately, life insurance is something many people – especially women, who are chronically underinsured – avoid thinking about for as long as possible. Others don’t prioritize it because they’re not sure if they need it. In reality, the question of whether or not you need life insurance is an easy one to answer. Ask yourself: Would anyone suffer financially if you weren’t around to provide for them? This could be a child, a dependent parent, a spouse or even a business partner.
If your answer is yes, it’s time to consider buying some type of life insurance, which would provide your beneficiaries with funds (known as a “death benefit”) if you were to die.
Your death benefit could:
- Help replace your income for family members
- Cover funeral costs
- Pay off debt
- Fund college for your kids
- And more
Simply put, life insurance is a smart, often cost-efficient way to make sure others are taken care of if something happens to you.
Term Life Insurance
Term life insurance provides a death benefit for a specific period of time called the term. When that period is over the coverage terminates. Term is a pure insurance policy with no investment component attached, which is why it’s usually the most inexpensive form of life insurance. The cost varies based on the size of the death benefit, your health and your age. Term life insurance is the right insurance for most people — because it’s the best way to get the most amount of coverage for the least amount of money.
Employer-Sponsored Term Life Insurance
Buying a policy through your employer may offer a less expensive way to buy more, because group life insurance policies — like group health insurance policies — spread out the risk the insurer is taking over a larger group of people. The downside is that when you leave your job, you’ll lose the coverage unless you can arrange with your employer to continue it by paying out of pocket. Not all companies allow that.
Permanent Life Insurance
Permanent life insurance provides coverage for as long as you live providing the premiums are paid. Besides including a death benefit, permanent insurance has an investment component that enables you to accumulate cash value. A portion of your premium goes toward building a cash account which can then grow tax-deferred from policy dividends, interest or investment earnings. But because it’s doing double duty by providing an investment vehicle and a death benefit, permanent insurance typically costs more than term.
You should talk with a professional who can explain the return you can expect to see before you buy. And if you don’t understand exactly what you’re looking at? Keep asking questions until you do.